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tv   Today in Washington  CSPAN  September 29, 2010 2:00am-6:00am EDT

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we begin new programs such as the ohio class replacement, the joint family of systems for long-range strike, the army's ground combat vehicle, and even the new presidential helicopter which we will be embarking on, we need to establish -- and we will -- a status of portability requirements that have the same requirements. .
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to reward contractors who control their costs and demonstrate exemplary performance. we'll remove obstacles to competition. last year the pentagon was awarded millions for contracts that were to be competitive but only one bid was received, usually from an incumbent. simple changes in how we structure valuations and work with industry have been shown to reduce by 50% the incidents of single bids by incumbents.
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additionally we'll promote real competition for it is the single most powerful tool the department has to drive productivity growth. we must stop deluding ourselves with the idea that directed buys from two designated suppliers represents real competition. we're already cutting down on directed buys with the navy's combat ship where we set in place real competition that will save more than $1 billion in the next five years alone and we can demonstrate that with additional savings expected over the entire life of the l.c.s. program. competition is not always available but the evidence is clear the government is not availing itself of all possible competitive situations. fourth, we'll move more aggressively manage the over $200 billion we spend annually on services such as information technology, knowledge based services, facilities upkeep, weapons system maintenance and
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transportation. when most people think of the defense budget they think of ships and planes but more than 50% of our contract spending is actually for services. and you may find this hard to believe, but our practices for buying services are even less effective than for buying weapons systems. fifth, we're taking steps to reduce -- >> wait, i don't have any difficulty believing that at all. i want you to know that. >> i think that's a duh? >> i'm certain you don't. i did it first but am getting used to it. filthth we're taking steps to reduce the number of o.s.d. level reviews to those necessary to support major investment decisions or to uncover and respond to significant program execution issues. eliminating low value added statutory processes and i hasten to say at this point i'm not referring to weapons acquisitions reform act that we understand the intent of that
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and appreciate that intent and are executing to that intent including developmental test and evaluation and systems engineering. the kind of thing i have in mind is this, i sit in there in the pentagon on saturday afternoon reading reports to you that are this thick and in an embarrassing number of circumstances late to need. and am convinced i'm the only human being that ever read it, never will and the reason i'm reading is because i have to sign it and am afraid of embarrassing myself. i sign an equal number of letters to you in which i say you ask for it in may and it's june and it has nothing to do with intent but execution and the paperwork burden we've imposed upon ourselves. that's just a piece of it.
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it's not just in responding to your inquiries which we need to do. it's our own internal paperwork and very importantly, it is the paperwork burden we impose upon industry which we have them do something and of course we then end up paying for it and it becomes an allowable cost and we charge. these are the kinds of things we're talking about and not changing the intent of any of that reporting but trying to change the volume and the responsiveness of it, mr. chairman. so i wanted to -- because you had mentioned that, comment on that. let me just conclude by saying we recognize the change in our business practices will take time and require the continued close involvement of our industry partners who made major contributions to this effort and financial vitality is in the national interest. we also need your support for the success of this endeavor.
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why do we think we can succeed? several reasons. first of all, we have very reasonable reduction targets here. next, we're focused on specific savings, not on abstractions but on very specific things that we can do and have been shown to work. third, i think it's fair to say after an era of double-digit year-on-year budget growth that's fat that crept in we can identify and get out. and the fourth is that president obama, secretary gates, deputy secretary lynn yu, this committee, congress as a whole and the american taxpayers are all expecting it, want it, need it and the last thing i'd say is to those who doubt or who hesitate, they need to consider the alternative to the careful management unto this new era and that would be broken or canceled programs, budget
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turbulence, uncertainty for industry, erosion of taxpayer confidence that they're getting value for their dollar and especially lost capability for the war fighter in a dangerous world. so not only can i think we succeed in this endeavor but we really have to. thank you. >> thank you secretary carter, general cartwright. >> chairman levin, senator mccain and distinguished members of the committee, thank you for the opportunity to discuss the department of defense efficiency initiatives. a few points in context. we remain a nation at war. troops are deployed around the world, many engaged in combat. we are committed to ensuring these troops are properly supported. second, d.o.d. is a bureaucracy which has not fully adapted its processes and constructs to the information age and must adapt with increased speed in order to ensure we sustain our com president yeltsintive advantage.
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in the era of rapidly evolving threats our success depends on our ability to adapt quickly. third, d.o.d. is cognizant of the nation's financial situation and do not expect budgets to grow at the rate they did the last decade. when developing granding strategy it's the first duty to appreciate the his or her nation and represented it last year in the portfolio changes and earlier to release our strategic reviews. the secretary's efficiency initiatives are aimed at seeking the same effect in our organizations. these initiatives are not cut but rather a shift of resources overahead to the war fighter increasing the ratio. regarding the disestablishment of joint forces command, shift com has achieved the goal to drive through the military and we must continue along the
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positive selectors regarding joint activities as directed in goldwater-nichols. we must also improve initiatives to strengthen efforts in the interagency and combined arenas. is it is our goal to reduce unintended redundancies and layering to align responsibilities with service, train and equip functions in order to reduce inefficiencies as forces are presented to combatant commands. at all the co-coms we must consolidate functions where appropriate and where functions are retained move towards a construct of combined, joint organizations or centers. the combined and interagency aspects are critical components to establishing base line capacity and surge expectations required for functions and capabilities as this nation presents. as a cyberdomain continues to grow in importance, the department will look to ensure lines of authority and responsibility are clear and adaptible. we focus cyberoperations in
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cybercommand. we will align policy and oversight activities in strengthening the d.o.d. chief information officer. finally, we must align cyberrequirements and cyberacquisition to maximize support to operational activities. given the expanding role and criticality of the networks that hold and transit that information we need to manage systems in the cyberdomain as we do weapons systems. to ensure our success, i i.t. systems must have the proper architecture and capability to ensure adaptibility and innovation. further, our architecture should enable collaboration throughout joint interagency, coalition and commercial partnerships. the free flow of information among these players are integral to a superior architecture. the department's information systems must extend to the tactical edge and must work when others do not. i look forward to answering your questions.
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thank you. >> thank you very much, general cartwright. here's the time situation this morning. we have two votes probably beginning at 11:30. many of us, perhaps most of us are going to be going then to arlington for senator stevens funeral which i think the buses leave at 12:15. we want everybody to have some time here this morning so we're going to have to have a short first round. but then i will come back and whoever else can come back after the second vote, assuming there is one, so there is likely to be a gap here between somewhere around 11:40 and 12:15. we're also going to have a vote off the floor on a number of matters that are pending before
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the committee. that will be at the end of the first vote. ok. so i hope everybody will help out on having that off the floor vote but at the end of the first vote this morning in the senate. so let's have a short first round here so everybody will have at least some opportunity, including all those who will be going to the funeral. so we'll just have a five-minute round here. and if there's not enough time for everybody, then perhaps we can yield to each other to accommodate that goal. let me start with you, secretary lind. too often in the past we constrained a number of d.o.d. employees without placing a number of limitation on service contractors. we have not been told what categories the contract
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services are covered by the secretary's directive. am i correct in understanding that critical functions like weapons systems, maintenance, health care services and logistic support to our troops will not be affected by the planned reduction in contract services and when can we expect to see a clear definition of what categories are contract services are covered by the planned reduction and what categories of services are excluded? >> your assumption, mr. chairman, is correct, it would not -- the reduction and service support contractors would not affect critical war fighting capabilities like weapons maintenance. the general definition of a support service contractor would be someone who provides staff augmentation to government employees. i realize you're looking for something more precise and we're endeavoring to provide
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that with a task force working on that over the fall and sometime late this fall or early next year we should have that. >> is that task force in place now? >> yes. >> would you tell us who is on that task force? >> the overall task force is compared by robert rangel, the secretary's chief of staff and there's a subgroup, i'll have to get for the record who chairs the subgroup. >> let us know. that would be helpful. in the past we found that proposed cuts to contract services are nearly impossible to force because expenditures for service contracting are invisible in the department's budget. for this reason section 806 of the national defense authorization act for fiscal year 2008 required that budget justification documents clearly and separately identify the amounts requested in each budget account for procurement of services. the department has not yet
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complied with that requirement. when are you going to comply with that requirement, secretary lind? >> part of the effort i mentioned would be to only comply with that requirement and i would add, i think your implication is right, we are regretting the department hadn't complied earlier and would make the task that we're undertaking easier if we had better data and we're endeavoring to develop that. >> so when will the department comply with that statutory requirement? are you going to comply for the 2012 budget request? >> we are trying. i can't commit at this point we'll have all the data to be able to do it but we'll do our very best. >> it's a couple years now overdue so it's not satisfactory, and i'm just wondering if you can give us a better handle on that, if necessary month by month and don't want to burden you with
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unnecessary requirements but this is something in law and is essential there be compliance on this so would you let us know by the end of october, let's try report number one, whether or not the budget, 2012 will be complying with that requirement? let us know by the end of october. >> yes, i'll do that. if not, why not? on the shift com issue. was there an analysis of that issue before the decision was made to -- relative to shift com and precisely who is involved in that analysis? >> the secretary made his decision on jif-com based on a series of meetings, probably a series of 30 meetings he had with his senior military advisors, the chiefs, the
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combatant commanders, sfrictly the ones who are incoming and outgoing for join forces command as well as the senior of office of secretary of defense. during those meetings, the central military rationale, there are four and i asked general cartwright to go in more details that are in the unified command for the joint forces command and the conclusion at the end of those meetings was those purposes no longer in some cases, particularly the joint manning was redundant with what the joint staff was already doing in terms of joint doctrine and joint training, still important functions but no longer justified a four-star military command with a billion dollar budget. >> would you provide the committee any analysis it which were completed or done or presented to the secretary relative to that issue for the record?
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>> we'll provide whatever we have for the record. >> finally on that issue, my time's up, the president approve that yet? those changes in the unified command plan? >> the secretary has forwarded his recommendation to that effect to the president. the president has not yet made a decision. >> thank you so much. i thank the witnesses. sir, you've been around a while now and don't you think one of the fundamental problems we're facing here is the consolidation of defense industries which has really led to a virtual lack of competition so in the 1990's we're aware the defense industries were encouraged to consolidate so now we have very little if any competition. if there's any competition it's between two and most of them there is none. do you agree with me that's a
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fundamental problem here? >> it is a fundamental constraint on our ability to get competition and that's why we have to work extra hard to make sure we get real competition. so there's several things you can do in that circumstance. we do have competition among the big houses. it's important that we continue to encourage new entrants in the defense field, particularly smaller companies that might grow into bigger companies. they offer vitality and technical health as qul as -- well as new forms of business including small business. it's important we look at creative ways of getting competition. i mentioned the ship strategy as the navy altered it six months ago or so, as an example of that we had a situation exactly what you're pointing to which is two shipbuilders who
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were showing the signs of -- or suggesting in bids, an expectation they would continue to be in business no matter what. and so we said well, no, that's not working for us so we're going to downselect, somebody's going to lose and somebody is going to win. the bids that came in after that announcement were quite different than the bids that came in before. >> why don't you supply that for the record for us. >> i'll do that. >> i think that's really one of the biggest problems here. i'm glad we're going to fix price incentive contracts. but if there's only one major defense corporation competing, i don't know the answer but i really do believe that's a fundamental problem. speaking of reports, there's a myriad of reports required by congress every year and it grows every year.
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every time we do the authorization bill and somebody with an an amendment approved, we ask why don't we ask for a study and report. you've seen that game played, so have you, bill. why don't you give us a list of the reports that are unnecessary and you think are unneeded and duplicative and maybe we could act next year and eliminate those and you could spend saturday afternoon watching naval academy football instead of sitting in your office. we all know there are stacks and stacks of them but maybe it would be good to get an assessment from you of the reports we think are unneeded and think we would agree with a lot of them. we don't read those reports either, dirty little secret. so sometimes we get briefed on them if they're very important but the vast majority of them, as you know, are stored somewhere. i don't even know where. mr. lynn, isn't the biggest cost escalation to d.o.d. today in health care?
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>> >> yes, sir. i don't know it's the biggest in terms of increase but it's the largest account growing at a substantial pace. >> you have any ideas on that issue? >> we are reviewing that and as part of the fiscal 2012 budget i think we'll be proposing to congress on ideas to restrain health care costs. >> there is no doubt it's growing in dramatic fashion. >> there is no doubt. >> and double-digit inflation. >> in some years. >> recently. >> yes. >> the other thing which might be helpful to this committee if you -- after asking for a report, maybe you could do a little study for us or just compile statistics on the so-called tooth to tail ratio say over the last 20, 25 years. i think that we'll find is a dramatic growth in civilian personnel, pentagon and other
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places. and i think we're also going to see a dramatic growth in staffing and the tooth to tail ratio becoming less and less optimum to say the least. would you agree that's pretty much the case, general cartwright? >> yes, i do, senator. we have several staff that have grown and the impact on the forces that ages the force, it consolidates a lot of our activities, the leadership activities and headquarters away from the battlefield and tends to be layered and that's what we're after. >> i think it would be helpful to us and motivate some kind of action if you showed us how dramatic that growth has been as opposed to the actual number of war fighters on the battlefield or in the ocean or in the air. i thank you. >> senator lieberman. >> thanks to the three of you for being here. thanks to secretary gates for
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initiating this series of moves which i support, the fact we're asking our more military than we have in quite a while with the combination of being involved in the war against islamic extremism and managing our relations with a rising and more assertive china and a host of other problems. and the fact is that we're already facing a squeeze we're not giving the military all that they need and their part of the answer is to eliminate waste. what secretary gates and all of you are doing here. i want to focus in on joint forces command but i do have questions on that. i'm not stating my opposition to the proposal here but i really want to ask, is it good for our national security, have we -- have we reached the point it's really time to put up the
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mission accomplished sign on jointness in our military, and does it really save enough money to justify what will be lost by closing the command? to me those are important questions and i don't have the answers yet but i do want to admit that i may be biased here but i'm still keeping my mind open because i was involved in the late 1990's with former senator dan choates, perhaps future senator dan choates with legislation to create the joint forces command. we were responding to a report what was then called the national defense panel which was a team b, outside group to review the quadrennial defense review of 1997 and the n.d.p. was an impressive group and had people on it like richard armitage, admiral jeremiah, general bob riscassie.
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they recommended the creation of the joint forces command to drive jointness through our military which had not been done even though goldwater-nichols was in force in law, ultimately secretary cohen in response to a lot of back and forth, general shelton was general of the joint chiefs and put this joint forces command in place. so my question really is, and i must say with respect to the -- to me there's a little bit of confusion about what the argument is here because secretary lennon, in your testimony i think you did say the principal purpose for the creation of jf-com 99 is society a military culture and doctrine has largely been achieved. on the other hand i think you
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did say in response to chairman levin, still important that we -- essentially it hasn't been achieved but no longer justifies a four-star command. my question really -- three questions. i'll ask them open-ended. have we really -- i don't believe we've accomplished the mission of guaranteeing joint necessary in our military which is fighting jointly. and i wonder if you'll disband this command, where are you going to do it or do you think we have achieved it thus far and secondly does it save enough money to justify the closing of the command? secretary, you want to start? >> sure. i wouldn't say it as strongly as you did in terms of mission accomplished danger in that at the same time. i think we've made substantial progress. former presidents are aware of that for sure. >> we've made substantial
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progress in internalizing jointness into the combatant commands and how they operate. i think we operate communlly differently than we did in the 1991 gulf war which in many ways is a trigger for the representation or the panel you suggest. i think we operate in the complex we're in fundamentally differently than we did then. i think the services operate fundamentally differently in a much more joint way and it was our conclusion we made sufficient progress that it will not be reversed and that we can use the joint staff, subordinate organizations to continue that on command and control and other important elements to continue that progress but it doesn't, as i said, justify a $1 billion command and do think we can make substantial savings off that billion dollars by eliminating the functions of the joint manning role which duplicates the role of the joint staff. >> my time is up, i don't want
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to go beyond. for we have a cost figure about how much you think closing the joint forces command will save? >> we're working through that and think we'll be able to sustain a substantial portion of that $1 billion. but part of the process now is to determine which elements, which centers and so on on the joint forces command and where we want to keep them and which things would go away, with the headquarters, the join manning functions and then net that through and get the savings figure. >> obviously, i'd raise the question if there's some parts of the command you're going to keep because you feel they're still necessary, where will they be and will something be lost if they're disbanded and the whole is greater than the sum of the parts quality of the command that exists now. but i look forward to those answers a the a another date. >> thank you very much. senator enthusiasm. -- senator thune.
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>> the question is for the entire panel and has to do with something secretary gates stated in his may 8, 2010 speech at the eisenhower library and said the fact we're a nation at war calls for maintaining the current military structure and the goal of this initiative is to cut our overhead costs and transfer those savings to floor structure and modern situation been the program budget, end quote. on august 9, 2010 secretary gates stated the task before us is to significantly reduce the department's excess overhead costs and supply the savings to structure, end quote. over the summer there have been rumors the b-1 bomber complete which has been in constant presence for afghanistan throughout the war might be ordered to retire and the savings found under this initiative. general petraeus in front of
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this committee spoke highly of the b-1's performance in afghanistan and i'm per -- perplexed rumors of the b-1 fleet in light of secretary gates' emphasis in sustaining and modernizing our floor structure. my question is what cutting forestructure to find savings under this efficiency be under direct opposite to cutting those savings for forestructure modernization. >> secretary gates has asked us to do two things as we go through that. one is to make a determined effort to reduce overhead, transfer those resources to the war fighting accounts and those are the quotes you indicated. he's also asked us to take a scrab above the war fighting themselves which is a
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substantial part of what secretary carter is doing and see if we can gain better effectiveness or productivity from those results. what the result would be of that i wouldn't prejudge that at this point but we're looking across the board, both at the forces themselves as well as the overhead to war fighting transfer. >> so what you're saying is the department is not only looking at bureaucratic redundancies and overhead but is looking at reducing floor structure in order to provide -- >> we are looking at how to make the forces we have the most effective they can be to accomplish the mission. let me ask you one other question with regard to the september 20, 2010 air force times article where the air force chief of staff general schwartz said the 2005 brac initiative is a failure that's
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not produced the cost savings the department had expected and in fact the g.a.o. stated, and i quote, it was unclear whether joint basings will result in actual savingings and was a war college study stating joint basing is actually costing the department of defense more money than the 26 bases and popes had remained second in quotes. what is your reaction to the criticism of the 2005 brac joint basing initiative ending up costing money rather than saving money? >> i'm aware of what general schwartz said in the g.a.o. reports. i think we have to take them seriously and re-examine the path that we're on and review to see if it's wrong and if the savings are there or rethink our current action. >> does what gates recognized
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include the consolidation of overseas bases? >> yes. >> have there been any recommendations made about base closures or consolidations of this year's announcement? >> there's about no reservations to that effect but we're in the middle in terms of the overseas basis there's a global force review going on at this point thinking what are the pump those oversees and how fast to accomplish those purposes and what we think the structure would be to support that. that's a study ongoing right now. ry think my time expired. senator reid. >> just again an overview about how we're going to approach these savings. it seems to be resources that have to be committed to afghanistan or iraq and other
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contingency operations. then there's programs that help beth the long-term defense plan and these operations and then there's the long-term defense plan. so secretary lynn, is there any -- as you approach this problem is there any sort of thought going into how you deal with these different types of resources, hopefully the it up mental funds and iraq and afghan funds will diminish over time. how do you factor in these different aspects? were >> we will continue to propose an overseas contingency account for those operations in afghanistan and whatever remains in iraq. and as you say, i think over time you could expect to see those conditions permitting decrease. most of what we've been talking about today in the $100 billion in the base budget and we're talking about just to be clear not reducing the base budget by
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$100 billion but finding $1 billion in the overhead account we can shift to the war fighting account so we can have 3% growth which is what i think we need to sustain the abilities but an overall top line of 1%. that's a significant challenge but that's what we're trying to do. >> besides just the value of efficiency and productivity gains, this is also about freeing up resources and continuing operations overseas and support the fighting forces? is that fair? >> absolutely. >> part of what we'd like to be able to do is the open accounts have in fact sustained capabilities we have found necessary in this conflict we want contained as part of our score capability for those to move into the budget. -- budget. >> but you identified unique,
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specific items which you plan to fade out. >> that is correct it. that's what the analysis is looking for. >> secretary carter, you point out that services and growth and service contracts are probably more difficult than we all expected. i think usually the poster child for this problem is a big weapons platform and is expensive, etc. and there are two contractors not for full competitors. but i since these service contracts are proliferating. times we're rying the contracts for the services. can you tell us how you attempt to deal with the issue of service contracts? >> a few of the main points, senator, is that the first thing, the little categories are different. there's maintenance activities,
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there are i.t., information technology services cat gere of their own. there's advisory and assistant services or knowledge based services which is principally the matter the secretary was speaking of earlier. these are all augmentation of the government staff that provide expertise that we at the moment don't have within our own walls. so i contract externally and they play a role and nothing wrong with that but make sure we get them aofficially and strengthen the talent we have with the government and not excessively reliant upon people outside. in all of those areas, unlike ships and planes, our ships and planes are bought by people who buy ships and planes for a living and are good at it. most of our services are brought by people in an
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ancillary duty and they're amateurs and issuing contract for services in order to help them. that's not their principal preoccupation so it's not surprising their trade craft isn't as good as it would be if that's all they did. we're trying to help them get better and how do you get better? it's things like ask really? try to shape the requirements. be clear about what you want, don't just into asking more and more and being more and more reliant. ask yourself why five years ago three people sufficed and now five people are doing exactly the same thing. recompete periodically even though that's a nuisance in some ways for somebody trying to get other things done. we're trying to help our services to do better without burden them with administrative culture but insist them to be good amateur buyers.
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market research goes into that. it depends sector by sector but the low hanging three is there and there's a lot of money and the growth has been a very high rate of growth over the last decade in services. they've grown paster than everything else and knowledge based services within them have grown faster than the rest of services. there's a lot we can do. contingency contracting is an area we need to improve and know we didn't do that well in iraq and are trying to do better in afghanistan. across the board we've got work to do. >> just a final comment. it seems wettingly or unwittingly we created a system where it's much harder to hire a full-time d.o.d. employee than it is to write a contract 10 or 20 times more over the relative period of time and maybe take the past of least
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resistance. is that your observation to me? >> it absolutely is and part of the acquisition work force initiative which this committee had a lot to do with in getting underway. we're trying to make it easier for our buying commands to hire within the walls of government the kinds of people we need. these aren't oversight bureaucrats but people at the point of execution, systems engineers, cost analysis, pricers, contracting officers and so forth. the people who actually execute. it's a strugpl. the economic status is helping recruiting in our department. but we need to make it easier to bring them in if we want good people within the walls. >> thank you, senator reed. senator lemieux. >> thank you, mr. chairman and
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thank for you being here today. as someone who is new to the senate, one of the things that initially struck me when i first came here was the size of the defense department and the number of combatant commands and the number of four-star officers. i just want to go over this to make sure i have my information correct. we have 10 combatant commands as well as this new cybersub unified command which i think is under strategic command. we have designers at four-star officers in the united states military as well a 1,717 civilian employees in the defense department. and i think these are staggering numbers. to the average american to hear the size of this organization and make no mistake we all want to support the military and want the military to be as effective as possible but also want the military to be
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afishes. having heard what you said, secretary carter, about outsourcing and the cost increases and services on the outsourcing side, what are we doing to look internally beyond the recent proposals that come up about joint forces command and what are we doing internally. are we using our resources the best as possible, are we top level with the 44 star officers? what can we do to make things more efficient or effective? >> i think secretary lynn and general cartwright are in a better position than i to give you an answer to that question. >> nor, i think most of numbers you gave are accurate. the secretary suggested there be an addition over the last 10
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years of about 100 flag officers. he has asked for a review of that growth with a target of reducing it by half that. similarly, there's been a growth of about 300 senior executives, civilian executives. he has the same aim there as to review the growth, again, with the target of a reduction of about 150. we've been talking about the growth in support contractors. he's directed that over the next three years the target be a 10% reduction in those support contractors. as i indicated, chairman levin, those are for those providing staff augmentation or depot maintenance or more direct war fighting functions. the secretary directed we look at all -- you didn't mention the various boards and commissions but we have 65 of them. seems like a lot.
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we're reviewing those to see if we can't reduce and he directed a 25% reduction in their funding immediately. senator mccain mentioned the studies, some of which we generate internally and some we're looking to reduce on our own. some of which come from congress. there are good reasons for some of them but as the general said it's hard to review and we get about 600 annual reports and about 600 new ones in each bill. and again we're looking, i think 1,000 people more or less involved in producing those reports. there's potential for reduction there. secretary gates has i think exactly the same reaction you did, it's important to support the military. we're in the midst of a fight in afghanistan. but we think we can add to it by reducing our overhead accounts and putting those
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resources into the war fighting accounts. >> general cartwright, any comment on that? >> quickly, sir, the review of the structure of the ranks, etc. is not only at the top. we're looking all the way through. so every command or j.t.f. do we have the right level of responsibility. many times we have it there because a counterpart pretends to be a four-star and we're tying to under how to stop it so it can be pushed back to where it is appropriate and where we have the right balance and responsibilities associated with that individual. >> what incentives do we give to department of defense employees to find savings. is there anything in their performance review or anything tied to their compensation, buy a ship cheaper or find a
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service contract and are we rewarding them for that type of behavior? >> there's a study taken called a culture of savings and where we'll net the idea of how do we start to incentivize not only the individual but the institution to self-correction which is difficult. how do you elf ways, is it important to the command. do you get to keep the resources because it's incentivizing to do. have we put our right discussions where you have contractors and civilians and military active and can you put in a structure each one of those costs execute and may i say to you, you need flexibility to move around. sometimes the contractor needs something right now to avoid the long period or at least cover the long period to hire a civilian. can we put in incentives to
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getting that tiffleian, not leaving can contract in that position. >> our time is up but want to commend you in your undertaking and will have this challenge throughout government and hope the agencies of government under take the same methodology you are. the financial situation in our country will not allow us to spend more than we take in. i want to thank you and appreciate you for the good work you're doing. thank you, mr. chairman. >> thank you, senator lemieux. ben nelson? >> i want to add my appreciation to the work you're doing to economicize and create more effective budgeting process for their department of defense. and as you do that the questions will continue to come up, are you cutting in the right places, outing it the right way, are you leaving in place the best kind of military we need or or you improving it?
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the questions are there and will continue to be raised. senator lieberman referred to jointness as a critical element of what you're doing and certainly maintaining jointness as opposed to reducing jointness by dealing with the joint command. i hope that as we develop, the process here to bring p together the elements of the military so that we eliminate stove piping or one branch of the government in its programs from encouraging them to buy another branch of the mill that we'll be able to maintain that jointness. it's obviously not easy. it wasn't easy some time ago or we wouldn't have created the command to deal with.
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i think it's now systemic within the thinking and the department of defense as well as the branches of the military to think in terms of jointness and reaction. senator levin and others have asked this analysis that you're working be provided to us in details analysis. do we have a time frame to expect what your analysis will be. in other words, what your leffed knowledge is to reduce unnecessary expenditures, to eliminate some of the traps with double-digit increases in the budgeting. do we have a time frame where he might expect that. as i indicated at the outset, there are four trams which is focused on the $100 billion savings.
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the savings themselves and the analysis that supports the move will be part of the fiscal 12 defense budget and will shoot to yon in february. the track two effort is outside efforts including the one general cartwright uned to than just in front of the employees. we'll be researching those as they become available. track three are focused on particular practices within the department. secretary carter testified to some of those a few moments ago and put out a memo on the changes that we're making in the acquisition system earlier this month and if we haven't already we're happy to provide that to the committee and finally in track four we have a series of task forces working on implementation plans and as they develop we'll provide those to the committee.
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>> all right. thank you. in one particular area where i've been very pleased to see the level of coordination between the navy and the air force is the global hawk program. the process in joint training and a coordinated operation. here in this program, hit at the opportunities that are there to rei'm nate redundancy and improve effectiveness. i'll go to one specific area i hope we can continue that kind of cooperation and joint effort and that's an unmanned aerial vehicles. i've season to general casey and general some warts and have to do better to coordinate their efforts. we don't need two separate programs with any unnecessary duplication that might come
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from that. both the army and air force plan to spend more than $7 billion on aircraft, it raises a red flag. not that a red flag can't be taken away. the red flag is there and hope we'll direct the attention where it's a specific area redundancy to be likely the main encanter. general cartwright? >> there are places where we like commonality and we look for commonality rather than redundancy in our unmanned area, the ground control networks, the space side of the occasion and making sure they are common to the best extent possible. in the unmanned aerial vehicles we have a different mind set for procurement and turn to dr. carter on this. but to key is a common vehicle with different pay rodes.
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and using that and being able to adapt those payloads well within normal acquisition practices has been our advantage in that area and we seek to capitalize that in that area as well as others. >> i think general cartwright has it just right. the only thing i'd add is on the specific matter of global hawk and i indicated it in the document issued two weeks ago. that is a program whose cost has been growing. and i think unnecessarily so. so that is one where we are intent on restoring what i referred to earlier as productivity growth and had good cooperation from those performing the work who recognizes the cost has been growing and it's an important program to us and we can't
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allow ourselves to manage it in a way it becomes unaffordable. it just so happens that that is a focus my attention at the moment for just the reason i indicated earlier when i expressed our dismay at coming to you with exactly the same thing every year and asking for more money for it. so global hawk is one we need to do work on as important as it is. >> do you agree there is a commonality developing between the air force and army with respect to that. >> i do read and i think general cartwright is right in the rearward communications, the exploitation systems, commonality there and the handling systems in the field, taking them comment and having a suite of mission payloads or any user can draw, these are
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the key ingredients of the mix and match strategy towards u.a.v.'s and we see that out in the field in afghanistan the way we use the unmanned systems. >> thank you all. thank you, mr. chairman. >> thank you very much senator nelson. senator brown i believe is next. >> thank you, mr. chairman. >> first of all, thank you for trying to give us the best value for our dollars. i think every agento should do a top to bottom review and streamline off those avings and being somebody in the military, i'm keanly concerned and aware of that fact that we need to maximize our daughters in this day and age because of what's happening federally. that being said, i find it curious you have to come up with a budget but yet the federal government isn't doing a budget.
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congress. doesn't have congress yourselves but we're asking you to come up with a budget and would at some point we would stretch the lead by an champ. we have a tremendous amount of equipment, guard reserve, back to duty quick and in iraq we have yards filling with it sitting there. has there been any thought in an effort to create jobs into basically get our equipment up and running and ready for the next battle? to move forward some of the expenditures we're going to be used for that sort of thing maybe down the road and bring it forward, actually get those things happening now, creating jobs, upgrading our equipment, getting everything back in the system and ultimately understanding and re-evaluating where we need to go from there because we may not need some of the equipment that is slated down the road if we can just take care of the stuff we have.
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i'll three it out there for whomever. >> but we have a major reset programon going do taking the equipment out of iraq and refurbishing that equipment where appropriate and bringing it back. take is going through the depots and that's going on as we speak. >> i would just add there's a juggling act that goes on when some of the equipment is forward staged as we reposture towards afghanistan. some of the equipment is positioned and being prepared, going out from theater so they can moved directly across from afghanistan. that's one class. there's another class of equipment we need to get back to the united states so guard units have something to train on in that we can get it. there's a third aspect here when of which is the
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through-put activities of our depots and we're trying to ximize that and keep it efficient in cost and effectiveness as we can. then there's a last category i think is the equipment to which you're speaking which is we're probably not going to use this equipment. it's probably coming back and actually out of date and probably are going to replace it with the next generation so can we take some of that equipment, train people like iraqis to maintain it and provide it to them as the case so we'd get the most gang for the buck and keep them on an american type system. those we try to balance again and the highest priority is making sure they need anything for afghanistan we get there and to train and equip those in combat and then work towards the lesser categories. >> just to pick up what senator mccain was saying, the whole idea of competition dealing
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with people who are providing equipment for us in the armed services or any other agency, secretary lynn, do you believe the competition is a good thing and if so, what are we doing to promote or send a message to the west so we can do our thing to help promote competition? do we get a better product or price? it seems like the federal government is the only place where we don't. [captioning performed by national captioning institute] [captions copyright national capable satellite corp.2010] รท??
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[captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] come november, we have got to start making some choices. for example, if we give tax breaks to billionaires and millionaires that cost us $700 billion that we don't have, that money has to come from somewhere. and, you know, we have got to be able to provide for our veterans. i'd rather choose veterans. i'd rather choose these young people looking for scholarships.
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homeless veterans. notion that they are out on the streets, they don't have a house! we have zero tolerance for homeless veterans. we're going to do everything we can to make sure that every single person who has served our country has proper medical care and a roof over their heads. often times that means counseling. so this is something that -- this is something that you're right to be emotional about and i think we should all be emotional about it and we're grateful to your dad for his service, and we just need to remind ourselves that there are millions of folks across the country who desthive same kind of respect and we've got to meet our obligations to them. one last point i'll make about veterans because it ties with the overall theme of education,
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working with our terrific members of congress here, we were able to pass the post 9/11 g.i. bill, which means that this generation of veterans is going to be able to benefit the same way my grandfather benefited, when he came back from world war ii, that he was going to get his college education paid for. we made it transferable to the spouses of veterans and their family members, if they were not going to use it because military families make huge sacrifices as well and oftentimes they don't get the service or attention that they need. this has been a priority of the first lady and is something that i'm very, very proud of. we have to keep fighting for these changes. they don't come by themselves and i hope that everybody is going to pay attention and do their homework and find out about candidates. i think what you'll find is that, you know, when you're
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making choices for governor and making choices for senate and congress, you know, that these choices are going to mean something. and you got to ask yourselves what direction do i want this country to go in? do i want to invest in our people and middle class and make it stronger and our infrastructure and clean energy or are we just going keep doing the same things that got us into this mess in the first place. all right? thank you so much, everybody. it was great spending time with you. thank you. [applause]
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>> c-span's local content vehicles traveling the country, visiting communities as we look at the most closely contested house races leading up to november's midterm elections.
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the second congressional district in virginia is in the far southeast corner of the state. it takes in virginia beach, which is the largest city in virginia, parts of nor folk, virginia and hampton and also the northeastern shore. it is primarily tourism areas. the second area has some manufacturing. the dominant industries are the united states navy and tourism. the ocean front, there is a vibrant community with tourism and hotels. it is not as large and myrtle beach but it has that sort of income. this particular congressional race is of high interest to republicans and to the democrats. when he was first elected, certainly the first campaign the republicans tried to keep drake in office and obviously they were not successful. since his election, he has been subject to a steady stream of
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blogs and emails aimed not at him, blasting almost everything he does because he is a freshman, a ledge slavet expert will tell you that the best time to unseat an incumbent is during the first term because they haven't quite established themselves yet. so they see him as vulnerable. this is one of those districts the republicans think they can have an end to do that. >> i'm left with two impression. i'm absolutely confident in the capabilities of our military forces and our civilian forces to successfully run a counterinsurgency program in afghanistan. my other impressions, i'm left with a very serious concern about the fact that our success here is largely dependent on what happened on the other side of the border in pakistan where our civilian, to a large extent and our military forces are not
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really present. >> in this years congressional election, glen nye is facing scott ridge, a republican. this is his first time running for office. he has been active in the republican party. he is a self-made multimillionaire who runs car dealerships in the region. the third candidate is an independent account who has a long career in the military. glen nye, who before -- he is a native of the area and grew up in norfolk and has spent the early part of his adult life working overseas before coming home to run for congress. since he has won, he has called
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himself a moderate in the congress. he voted for the stimulus plan but against democratic health care plan and is against cap and trade environmental legislation. he voted against the democrats drafted federal budget last year because he said it was too expensive. those views are consistent how he campaigned but he drew some fire from democrats, particularly on health care. the republican opponent, has ha he has not run for office before. he has been active on the republican party, a very strong donor to the party. he has packed many accounts with significant contributions. -- candidates with significant contribution. among his friends, bob mcdonald's who campaign for him earlier. ridgele before he would run in
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the election had to win against five other candidates. he turned his dealerships over to a company and that has been his job, has been on the campaign trail. he has invested some of his own wealth in this. he has contributed more than a million dollars in either direct donations or loans. his staff said he will not be outspent. >> with everything we owned in the u-haul trailer. that is true. came up here and had the real privilege to go to the university and start a business in the investigation. we laid down some solid principles i think in our business, leadership by example. i started parking way out in the gravel parking lot just as a way to show leadership by example. that was the same principle that i learned in 1978 at paris island, that little resort off
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the coast of south carolina. it is all inclusive. you get off the bus -- they got it all planned for you the next three months. rigell is a conservative. he opposes the health care plan. he said he would join efforts to repeal it if elect. he would like to have the business community unleashed from a lot of regulations. he feels that would help the economy grow. he wants to repeal -- he wants to lower taxes, particularly tax on capital gains. like nye, he is a very strong supporter to have military and veterans issues which in this district you must be whether you're democrat or republican. golden started out as a republican. he was running in n the primary last june but dropped out months earlier to run as an independent
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kp candidate. before he dropped out, he had been at one point head of the virginia beach branch of the republican party. as an independent candidate, he is running on a service record. decades of service in the u.s. navy and he has been very active in local politics. he doesn't have a lot of campaign funds but he is very actively campaigning and he has a group of people working very hard for him. while he doesn't have the funds, he is running full time for the office. he says he doesn't want to be a spoiler. he wants to win. kenny golden has, by stepping away from the republican party, has upset several republicans who feel she shouldn't be doing this and should be backing their candidate. by the same token, he has many supporters, many of whom are republicans. >> i'm an ex-republican. this is the last messages of the republican party and i kept this
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because this is a republican symbol from south africa. my friends from south africa brought me back this and so that is the only thing i kept. i did keep one of these. which is the poster we had made up for mccain and palin in 2008. these were made up for a dollar apiece. we had 1,500 of them made up. they went in a couple of hours. they were gone. and we actually won for mccain and palin near virginia beach. -- here in virginia beach. so that's all i keep. >> both parties,ing on how this election goes would perceive it as a message about president
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obama. it is his policies that are drawn on in the middle of this debate even though for example glen nye did not vote for the health care bill, people on the republican side are campaigning against it and want to use it against him and the legislation itself. in some ways,s the a referendum on the president's policies. it may say something about obama's chances in virginia in 2012. >> c-span's local content vehicles are traveling the country visiting communities and congressional districts as we look at some of the most closely contested house races leeting up to this november's midterm elections. for more information go, to >> on "washington journal" this morning, we'll talk about tax breaks with bill pascrell.
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republican representative dan lungren will take your questions about the g.o.p in america. and looking at genetically modified foods from jaydee hanson. a couple of live events to tell you about today on our companion network c-span 3. the armed services committee will look at secretary gates' proposals to spend the budget more efficiently. that's at 10:00 a.m. eastern. at 2:30 p.m. eastern, health and human services secretary testifies on her department's plans for defending the public against health threats such as pandemic flu or bioterrorism. the subcommittee will also hear from the head of the weapons of mass destruction center.
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>> i trust that following my testimony, both sides will work together on this issue in the best interests to have american people as you always do. >> whether poking a little fun at congress, celebrities have often appeared in washington. take a look at some of their causes with the c-span video library. nearly every program since 1987. search for names you might know any time. >> this weekend and through december, listen to landmark supreme court cases on c-span radio. >> please let the record indicate that at no time during the interrogation and prior to his confession was he advised either of his rights to remain silent or right to counsel or riggete right to consult with -- right to consult with counsel.
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the head of the congressional budget office says the economic recovery is what he calls anemic and that unemployment will not fall below 8% before 2012. testifying before the senate budget committee, doug elmendorf talked about some of the spending and tax proposals congress is considering to boost the economy. this is an hour and a half. our conditions today is c.d.o. director doug elmendorf. director elmendorf, welcome back. we look forward to your testimony. i would note that this is our third hearing on the economy in the last two months. we have heard from six outstanding economists so far. the director elmendorf will make
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it seven. let me begin by providing an overview of our fiscal and budget outlook. i think it is critically important to remember the economic crisis we faced just a short time ago. in 2008 we were in the midst to have worst recession since the great depression. the economy shrunk at a rate of 6.8% in the fourth quarter of twates. unemployment was surging with 800,000 private sector jobs lost in january 2009 alone. a housing crisis was rippling through the economy with home building and home sales plummingt and record foreclosures. we face a financial market crisis set up a global financial chance. i will never forget calling an
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emergency meeting. fall 2008. i arrived at about 6:00. there were the leaders of congress, republicans and democrats. chairman of the house. chairman of the federal reserve, of the previous administration and they told us they were taking over a.i.g. the next morning. they believed if they did not, there would be a financial collapse. those were very, very serious days. the federal response to the crisis i believe has successfully pulled the economy back from the brink. this year, we have begun to see a return to economic and job growth although both are weaker than we would hope. two of our witnesses from last week's hearing, dr. blinder and dr. alexandriai completed a study that measures the impact of the study to the crisis.
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dr. blirnede and dr. zandi's report said we find the effects on real g.d.p., jobs and inflation are huge. probably averted what could have been called great depression two. when all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum. but not nearly as much as most had feared and not nearly as much as if policy makers had not acted at all. if the comprehensive policy responses saved the economy from another depression as we estimate, they were well worth their costs. this chart compares the jobs we have actually had in our economy recently with an estimate of the jobs we would have had 2002 federal response. it shows that we would have had
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8.1 million fewer jobs in the second quarter of 2010 if we had not had the federal response. let me go to the next chart. we see a similar picture with the unemployment rate. the actual unemployment rate on a quarterly basis is now hovering at about 9.7%. that is still far too high and we must do more to create jobs and bring this rate down. but if we had not had the federal response, the unemployment rate would knot now be 15% and this is according to the analysis by dr. blinder and dr. zandi and would continue rising to 16.2% by the fourth quarter of 2010. so clearly, the federal response to the economic crisis has had and continues to have a significant positive impact on the economy. but clearly, we're not out of the woods. the economy remains unsteady and faces strong headwinds. that's why in the near term, i
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believe we need to focus on providing additional liquidity to boost demand and promote job creation. we cannot afford to repeat the mistake over the mid 1930's when recovery measures were pulled back too quick thrained great depression was prolonged. on the upper end of the scale, it shows that policies like extending unemployment insurance, and providing a payroll tax relief for firms hiring unemployed workers give you a higher impact on g.d.p. for each dollar spent. also, c.b.o. has done further refinements of these rankings. i look forward to hearing from
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director elmendorf about c.b.o.'s latest find information this area. in addition to the near-term economic challenge, we must also confront the looming long-term budget crisis. the retirement to have baby boom generation, rising health care costs and our outdated and inefficient tax system are projected to explode deficits in the year ahead. i might say if reextended all the tax cuts permanently, that would have a profound increase. according to c.b.o., federal debt could rise to 4 100% of gross domestic product by 2054. that is 44 years from now. that is a completely unsustainable course. we should be doing now is putting in place deficit reduction policies that will kick in after the economy has more fully recovered.
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by establishing and enacting these policies now, we will reassure the financial markets the united states is confronting its long-term fiscal imbalances. let me just conclude by what chairman bernanke has said earlier this year about the need for a credible plan to address our long-term fiscal challenges. he said, and i quote "a sharp near-term reduction in our fiscal deficit is probably neither practical nor advisable. however, nothing preventses us from beginning now develop a credible plan for meeting our long-term fiscal challenges. indeed, a credible plan that demonstrated a commitment could lead to lower interest rates and more rapid growth in the near term. i believe that. that's why i believe the work of the president's fiscal commission is so important. as members of the that
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commission, senator greg and i can atoast the hard work -- attest to the hard work being done by the commission. with that, i turn to senator greg for his observations and then we'll go to the witness for his testimony. >> thank you, mr. chairman . i look forward to hearing from him on his view of where the economy is going. i do not believe economic recovery will occur until we make it clear to the markets and to the american people that we will be serious about the debt in this country and the rising deficits and their impact on the markets and their impact on confidence. i believe the american people have pretty much lost their confidence in their government. they are seeing a government which is grossly overexpanded. which is exploded in its size from 20% of g.d.p. when this administration came into office
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and now to 24% of g.d.p. headed up to 26%, 27% of g.d.p.. the government which is ch has exploded not only in size but also in size of regulatory activity to the point where it is very hard for small businesses to be able to do business because they are weighed down by this massive expansion and regulatory activity, especially from the health care bill, creating huge uncertainties in the future of small companies or small businesses and whether or not they should expand. that is coupled with the fact that we have passed laws which have significantly retarded the availability of credit trying to correct the very serious problems with our banking system. the frnl reform bill being a specific act of transgression here and that it is a bill which has caused credit to contract and will cause credit to
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continue to contract without doing anything significantly -- substantially significant. it created layers and layers of regulatory activity. hundreds of regulatory agents, agency initiatives, including a brand new agency called the consumer credit, consumer protection agency which is going to be headed up by an ad hoc individual who is not going to appear before the congress for confirmation. what a transgression of the constitutional process that is since this person will probably be one of the most powerful people in washington. with a stream of funding, which has no -- absolutely no accountability to the congress because it comes from the federal reserve and therefore is not subject to anyone with
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appropriations and a director who appears will not have accountability to congress because them not have to be confirmed it is a law requires. and that agency shall i predict will be an agency not for the purposes of protecting consumer credit but for the purposes of pursuing a political agenda and social justice as defined by the leader of that agency. . so the american small business person is being inundated with the government of excess spending and regulation and excess concern about the capacity to get -- to know what's going to happen in the future and that's why the economy is moving forward. so we want to get the economy moving forward, we should begin by putting in place financial systems in the federal government which will control the deficit and debt and give people confidence.
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we should begin the process of an orderly reorganization of our health care system and make it function rather than become more bureaucratic and take a look at our credit markets and see how we can make them function more efficiently and effectively in a responsible way. all of which we have not done. i would say, if we want to -- there is that old pogo saying. we have met the enemy and he is us. the enemy of economic expansion in the country is the federal government, especially the way it has been pursuing policies for the last two years and we need to change. i'm looking forward to director elmendorf's thoughts. >> welcome back, director elmendorf. please proceed with your testimony and then we'll go to questions. >> thank you, senator conrad and senator greg and members to have committee. i appreciate the opportunity to discuss the outlook and the potential impact on the economy
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and policy actions. my comments will smares my lengthy written statement. although the recession ended more than a year ago, the economy has not bounced back quickly. unemployment stands 10 million below the level it would have reached had the recession not occurred. unemployment would be higher had there not been a falloff in the rate of participation in the labor force as the lack of available jobs caused people to stop looking for one. international experience shows that recoveries from recessions that began with financial crisis tend to be slower than average. following such a crisis, it takes time for equity and other asset markets to recover. for house holds to replenish and
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boost their spending and to restore capital basis and for businesses to regain confidence need reinvest. weak demand for good and services resulted from these and other factors is the primary constraint on the recovery. under current laws, c.b.o. expects the unemployment rate to remain above 8% until 2012 and above 6% until 2014 and we released a report in april that reviewed the impacts on people of losing jobs in the recession. policy makers cannot reverse all of the problems. however, in c.b.o.'s judgment there are both monetary and fiscal policy actions, that if applied at sufficient scale would increase output and
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employment during the next few years. but there would be a price to pay. those fiscal policy options would increase federal debt, which is already larger relative to the size of the economy than it that been in over 50 years and it is headed higher. if taxes were cut permanently or government spending increased permanently and no other changes were made, the federal budget would be on an unsustainable path and the economy would suffer. even if tax cuts and spending increases were temporary, the additional debt accumulated would weigh on the economy over time. but there is no intrinsic con diction between providing additional fiscal stimulus. imposing fiscal restraint several years from now with output and employment close to
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their potential. a combination of policies would be required. changes in taxes and spending that would widen the deficit now but reduce it relative to baseline projections after a few years. to assist policy makers in their decisions, c.b.o. has quantified the effect of some fiscal policy actions. in a report, we analyzed a reverse set of temporary policies and reported their two-yearfects on the economy ber dollar budgetry costs. the overall effect of those policies would depend on the scale in which they were implemented. making a difference in the economy they were output. it would involve a significant budgetary cost. this figure summarizes c.b.o.'s key findings. a temporary increase would have
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the largest effect on the economy per dollar. a temporary reduction in payroll tax would also have a large bang for the buck as it would increase demand for business services and provide direct incentive for additional hiring. temporary business investment would have smallerfects and yet smallerfects would arise from a temporary increase or a temporary across the board reduction in income tations. we explained that even though would lead to an accumulation of government debt and that would reduce the income unless policies were adopted that have offsetting effects. i've requests -- we have now estimated the short-term and longer termfects of extending the 2001 and 2003 tax tut cuts.
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reinstating the estate tax as we did in 2009 adjusted for inflation. the methodology we followed was the same that we follow analyst analyzing the president's budget each spring. the models used estimate the effects on the economy in 2011 and 2012. because we think the economic growth in the near term will be restrained by a shortfall in demand. in contrast, the models used in 2020 and beyond focus on the policies' impact on the supply of labor and capital. because we think economic growth will be restrained by supply factors 3789 as shown on the left side of this speaker, we have four alternative approaches
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to extending those tax cuts. order a full permanent extension that would extend all of the provisions permanently. a partial permanent extension that would extend all of the provisions except those applying only the high-income taxpayers. a full extension through 2012 that would extend all provisions but only through 2012 and a partial extension through 2012 that would extend expect those applying to high-income taxpayers. as c.b.o. has reported before, penchtly or temporarily extending all or part of the tax cuts would boost output and bloment in the next few years relative to what would occur under current law were those tax cuts to expire. lower taxes increase demand for goods and services and boost economic activity. a full extension would provide a
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larger boost than would a temporary extension and a full extension would provide a larger boost than a partial extension. however, the effects on extending those tax cuts on the economy in the longer term would be very different than their effects in the next two years. the long-term effects would be the net results of two competing forces. on the one hand, government borrowing reduces economic growth. >> excuse me on that point. do you have a slide that shows the longer term? >> yes, i was going to make the point and then show you the results. those are the longer term results. you can't see the picture is the netting of these two forces. there is the effect of increased government borrowing which reduces economic growth. on the other hand, lower tax rates boost people's net worth
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and saving which increases the net income. the overallfect is the netting of these two different forces. for some of the options, our estimates are based on different models span a broad range. this figure, however, shows the averages of the estimates across different models and assumptions for 2020. it indicates a all four of the options for extending the tax cuts would probably reduce national income in 2020 relative to what would occur under current law when those tax cuts expire. beyond 2020, the reductions in national income from all of the alternative tax extensions become larger, especially for the permanent extensions. machine over over more over, a permanent extension of the tax cuts would put federal debt on an unsustainable path.
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specifically, a permanent extension that was not accompanied by future increases in other taxes or reductions in federal spending would roughly double the projected budget deficit in 2020 from about $700 billion to about 1.4 trillion dollars. certain provisions that would apply to only high income taxpayers would adjust to budget did i have is it by 3/4 to 4/5 as much. permanent -- there were not accompaniedly reductions in other spending or tax increases but would also put federal debt on an unsustainable path. if policy makers adopted either of those policies shown, it would require future increases in tax or reductions in spending
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that would amount to a large share of the budget. thank you. >> thank you very much. so let me go first to the question of bang for the buck. in terms of economic policies, we might enact now to strengthen an economy that is too weak, your analysis shows that the largest effect would rise from a temporary increase in aid to the unemployed. the next largest effect would be a temporary reduction in employers payroll taxes. smaller, but still significant effects would come from other policies such as temporary reduction in the employee's payroll tax and additional one-time social security payments, additional temporary refundable tax credits for lower and middle income households and going down the line, other
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things that would have an effect but would be still smaller would be temporary increase in an investment in infrastructure and the final option you looked at was reduction one year, defer the increase in income taxes cha that you also found would have a positive effect although it would be the least bang for the buck in options analyzed. is that correct? >> yes, that's right, mr. chairman . let me make two quick points. we assume these policies would be enacted in early 2010. of course that is not possible at this point. we have not updated all of these estimates. if this picture could go back up there on my screen, that would be helpful, whoever is controlling that. >> is that the slide? >> yeah, that's the slide i had in mind. if we updated the numbers now, one, they would change a little
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bit but the basic pattern wouldn't be different. it is true that the effect of extending the tax cuts would look a little stronger because this extension actually began in 2011, one year into the two-year window we were focusing on at the time. if we were focusing on all of these numbers, that option of extending the tax cuts would have lower bang for the buck than almost all of the options on this list. another thing, i just want to add, mr. chairman, it is important to recognize this is the effect of per dollar on my budgetary impact. if one wants to have an effect on a certain size of the economy, some of these options can be done at a larger scale than others and that is a consideration for you and your colleagues as well. >> so let's go to the question of the tax cuts because that is one of the key issues that congress will confront when we
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return. as i analyze results of your work, it is that although they are pretty modest with respect to bang for the buck, extension of the tax cuts would be positive in the short term, 2011 and 2012, but actually be negative in the long term. that is permanent extension of the tax cuts, all of them, would actually be the most negative in terms of its effect on economic growth in the long term. is that correct? >> we haven't looked at all of these options over the longer term but of the tax options that we studied, the four different ways of extending the expiring tax provisions, the permanent extensions would have the largest negativefect on national income. the largest boost in the short run but the largest negative
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effect in the long run and that would occur because of the extra government borrowing from the significantly larger government deficits would drag down income more than the extra work effort or saving that would be generated by the lower tax rates. >> so the effect of tax cuts, which many of us associate with being positive with respect to economic growth, your conclusion is, in the short term, additional tax cuts extending the tax cuts, expiring provisions would be positive, although the least positive of the policies that you have looked at this terms of effect on the economy would give us the least bang for the buck, but longer term, tax cuts are actually harmful to economic growth because they are deaf it the financed. is that correct? >> yes, that is correct, mr.
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chairman . >> so that really creates a conundrum. on the one hand, we have a seriesor policies that have been rated in terms of bang for the buck, extending the tax cuts is among the weakest in terms of helping boost economic growth although it is positive so extending tax cuts would have a mildly positive effect short term but it would have a negative effect long term because they are deficit financed just as additional spending would help us short term but be negative long term. that's right. the effects are rather symmetric if that way. higher government spending or lower taxes, if not accompanied by other offsetting changes over
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time, just allowed to increase deficits and debt over time would have negative effects in the medium and long run. >> for many people it is countssbutesive that tax cuts could somehow hurt future economic growth. how is that? why is it that in your analyses tax cuts could be actually harmful to long-term economic growth? >> i think the natural intuition is people thinking about their own situations and thinking correctly if their tax rates were lower, that would give them an incentive to work more, to save more to, invest more. and that is right as far as it goes. the problem is that if those tax cuts are not companied by other changes in the government budget and are simply funded through borrowing, that that borrowing crowds out other private investment in productive capital
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in the sorts of equipment, the computers, the machinery, the buildings, that are the source of long-term economic growth and that connection is less visible. i think that is less apparent in most people's intuition. but it is no less important for being not so visible, for being more indirect. >> i think this is incredibly important testimony that you're giving us here today. i hope people are listening because what i hear you saying is short term, anything we do to provide stimulus, whether it is increase spending or additional tax cuts will give you a short-term boost, but either of them, additional spending over what is projected or additional tax cuts will actually hurt longer term economic growth because the impact of the deficits and debt will serve like a weight around the neck of
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the economic engine of this country. well, i thank you very much for that testimony. i think -- i hope people are paying attention. senator gregg? >> on that point because there is another side to the coin, if you use your logic, it would be, would it not be true that spending would have the same effect of crowding out economic activity if you had to borrow to spend? >> yes, that is exactly right. as i said, it is symmetric. >> i don't know that you did this analysis. which generates more economic activity? the spending or the tax cuts? >> so actually, i didn't have time to show it but there is a table in the report, i think i have here. so, it is a rather complicated table. you can read along if you want but i'll try to make the point
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more directly. if one looks at the right-hand column where we modeled the effects over time in 2020 and beyond that. what we have done here is modeled not just the effects of the initial cut in taxes but also the policy we needed later to put fiscal policy back in a sustainable path. you can see the far right columns that the -- what we assumed, increases in tax rates, in the middle columns, a way to increase government spending. the increases in tax rates have much more negative effect on the economy over the longer term than if the budget is returned to sustainability through a reduction in government spending. >> that is very important testimony. let me ask another question. your projections goi


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